MIRZA VIQAS RAUF, J. This appeal originates from judgment and decree dated 28th April, 2014, whereby learned Civil Judge Class-I, Rawalpindi, while discarding the objections of the appellants on the award filed by the arbitrator, proceeded to make it rule of the court.
2. Facts in brief forming background of this appeal are that respondents moved a petition under Section 20 of The Arbitration Act, 1940 (hereinafter referred to as "Act, 1940") before the learned Civil Judge, Class-I, Rawalpindi, averring therein that they are partners alongwith petitioners of the firm namely M/s Econo Express having business of Compressed National Gas Station, situated at 304 Dhamyal Road, Opposite Harley Street, Rawalpindi, and head office at 483-A, Street No.10, F- 10/2, Islamabad. It is asserted that the firm was created through partnership deed dated 13th January, 1998 registered under The Partnership Act, 1932. Business of the firm was started on 30th September, 2002. On account of some differences interse appellants and respondents, the respondents sought the court to refer the matter to the arbitrator by moving petition under Section 20 of the Act, 1940. The appellants were summoned, who submitted their written reply and by way of order dated 15th May, 2010, on the basis of consent of the parties to refer the matter to the arbitrator, they were directed to propose the name of the Arbitrator. Finally, Raja Abdul Wahid, Advocate was appointed as sole arbitrator by way of order dated 25th May, 2010. The arbitrator prepared the award on 09th November, 2010 and submitted the same in the Court on 10th December, 2010, which was objected by the appellants. In the light of objections, necessary issues were framed by the trial court and after recording of evidence of both the sides, objections were turned down and award was made rule of the Court through the impugned judgment.
3. Learned counsel for the appellants contended that the arbitrator proceeded with the matter without any formal reference from the court. He added that the arbitration proceedings were started by the arbitrator suo moto, which is not permissible. Learned counsel emphasized that even the award was not properly submitted and the arbitrator committed misconduct during the arbitration proceedings. Learned counsel contended that on submission of award by the arbitrator, the appellants though objected the award but their objections have been discarded without any lawful reasoning and award was made rule of the court. In support of his contentions, learned counsel placed reliance on CHINA INTERNATIONAL WATER versus PAKISTAN WATER AND POWER DEVELOPMENT AUTHORITY (PLD 2005 Karachi 670), PAKISTAN through Ministry of Defence versus Ch. FAZAL MUHAMMAD and others (2005 YLR 2896) and OIL AND GAS DEVELOPMENT CORPORATION LTD. PAKISTAN versus CLAUGH ENGINEERING LTD. through Local Representative Mr. Martin Harris (1999 MLD 254).
4. Conversely, learned counsel for the respondents submitted that the arbitration proceedings were conducted in accordance with law and there is no material irregularity, justifying to set-aside the award submitted by the arbitrator. Learned counsel contended with vehemence that award was rightly made rule of court and the impugned judgment is unexceptionable.
5. Arguments heard, record perused.
6. It is an admitted position that parties were running the business in the name and style of M/s Econo Express, being a registered firm. There also exists an arbitration agreement interse parties to settle their disputes arising from joint business. Chapter III of the Act, 1940 provides a mechanism of arbitration with intervention of court where there is no suit pending. Section 20 of the Act, 1940 directly deals with the matter in issue and respondents while invoking said provision, filed a petition before the civil court, seeking intervention that the agreement be filed in the court and dispute be referred to arbitrator. The appellants, while submitting reply to the petition, conceded the same and requested the court that the matter may be resolved by appointing an arbitrator. On the basis of statement of learned counsel for the appellants, the trial court directed the parties to nominate an arbitrator. Both the sides ultimately agreed on appointment of Raja Abdul Wahid, Advocate as arbitrator by way of order dated 25th May, 2010. The arbitrator then started arbitration proceedings and filed his award on 10th December, 2010 before the court, which was objected by the appellants through an objection petition, raising multiple objections. The objections were however, discarded and finally award was made rule of the court through impugned judgment.
7. Before delving into any other aspect of the matter, it would be apposite to note that admittedly no formal reference was framed by the trial court for the arbitrator to submit his award as mandated in Sub-Section (4) of Section 20 of the Act, 1940, which is reproduced below for ready reference and convenience:-
20. Application to file in Court arbitration agreement.
(1) ........
(2) ........
(3) ........
(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.
(Underlining supplied for emphasis)
It clearly manifests from the bare perusal of the above noted provision of law that before referring the matter to the arbitrator an order of reference by the court is sine qua non.
8. The scope of Sub-Section (4) of Section 20 of the Act, 1940 previously came under consideration in the case of OIL AND GAS DEVELOPMENT CORPORATION LTD. PAKISTAN versus CLAUGH ENGINEERING LTD. through Local Representative Mr. Martin Harris (1999 MLD 254) wherein this Court, while dealing with similar proposition, held as under:-
13. Since the appellant as stated above had raised several objections against the maintainability of the application under section 20 of the Arbitration Act, 1940, it was incumbent upon the Trial Court to give a specific finding before issuing direction for filing the agreement that the objections raised by the appellant did or did not disclose a sufficient cause for making such a direction. Under the provisions of subsection (4) of section 20 (ibid), the Court is not-only to order for filing the agreement but also requires to make a reference to the arbitrator. The order of reference is, thus, more important than the order of filing the agreement. Meaning thereby that if no order for reference can be made there should not be an order for filing of agreement. In particular, in the reference the Court is required to identify the dispute between the parties on which opinion of the arbitrator or arbitrators, as the case may be, in the form of award is required. If the Court finds that there is no dispute between the parties which requires resolution in accordance with the terms of the agreement certainly no reference shall be made to the arbitrator. In the instant case, the learned trial Court has, however, clearly passed a mechanical order for filing the agreement without recording its findings on the sufficiency or otherwise of the objections raised by the appellant.
Reference to above effect can also be made to PAKISTAN through Ministry of Defence versus Ch. FAZAL MUHAMMAD and others (2005 YLR 2896) and CHINA INTERNATIONAL WATER versus PAKISTAN WATER AND POWER DEVELOPMENT AUTHORITY (PLD 2005 Karachi 670).
9. The above discussion leads me to an irresistible conclusion that framing of reference in terms of Sub-Section (4) of Section 20 of the Act, 1940 and referring it to the arbitrator is a necessary corollary and pre-condition for the arbitrator to start the arbitration proceedings. Thus, leaving aside the worth and credence of the objections to the award, it is observed that when the vary basis of the arbitration proceedings are suffering with patent illegalities, the superstructure built thereupon would automatically crumble. The trial court thus has erred in law while making award rule of the court. Resultantly, this appeal is allowed and the impugned judgment and decree is set- aside. As a sequel, petition under Section 20 of the Act, 1940, moved by the respondents, shall be deemed to be pending before Senior Civil Judge (Civil Division), Rawalpindi, who shall first appoint the arbitrator and then frame a reference for determination of the arbitrator. No order as to costs.